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GOP May Sacrifice Individual Health Insurance For Broader Reforms

A number of positive things can be said about the Senate Republicans’ health care bill, but “stopping the collapse of the individual health insurance market” isn’t one.

The first draft of the Senate bill retains several of what Democrats like to call “consumer protections,” by which Democrats apparently mean that consumers are “protected” from health insurance competition, lower premiums and lots of options.

Here’s the back story: Prior to the Affordable Care Act, some 17 million Americans—including my wife—bought their own policies in the individual health insurance market.

Another 155 million workers and their dependents received coverage through their employers, and perhaps 120 million Americans were in government-run programs such as Medicare and Medicaid.

Most of Obamacare’s major reforms were focused on the relatively small individual health insurance market.

In most states, a health insurer could deny an uninsured person coverage or charge more if that person had a major medical condition.

Refusal to cover or imposing higher premiums are standard actuarial practices applied in every type of insurance (e.g., life and auto). They are intended to discourage people from remaining uninsured until a major event occurs (e.g., needed surgery or a car accident) and then obtaining coverage.

Barack Obama thought those practices were immoral, and so Obamacare requires insurers selling in the individual market to accept anyone who applies (guaranteed issue), and they cannot charge more if the applicant has a major medical condition (community rating).

While the public REALLY likes those provisions, they can destroy an insurance market—just as we see happening right now as Obamacare premiums explode and insurers flee the individual market.

The first version of the House Republicans’ reform bill kept guaranteed issue and community rating, along with other Obamacare protections. The House Freedom Caucus pushed back, leading to an amendment allowing states to opt out of community rating.

If a person remains insured, he can’t be charged more for a medical condition. But if he drops coverage and then returns with a major preexisting condition, the insurer in the opt-out states could charge more. However, the state must have a safety net program in case the premiums were too expensive.

The House bill keeps a very regulated health insurance market, but at least states that opt out of community rating might see a functioning health insurance market return.

The Senate Republican bill keeps both guaranteed issue and community rating, with no state opt out.

Fortunately, Texas Senator Ted Cruz is trying to get the state opt-out provision included. If moderate Republican senators want to let their individual market implode, fine. But why impose that destruction on other states?

Defenders of the Senate’s approach may claim they are funneling billions of taxpayer dollars to health insurers in order to “stabilize” the individual market and keep insurers selling in it—even Republicans used to deride similar Obamacare payments as “insurance company bailouts.”

Will it work? Your guess is as good as mine. Alaska and Maine created “invisible high risk pools” under Obamacare, which funnel money to insurers to offset their costs, and it seems to have worked fairly well. But it isn't clear the federal legislation would be as effective.

Plus, major federal legislation that affects a number of intertwining markets can lead to multiple unintended consequences—for better or worse.

Congress tends to pass major reforms assuming, like the “Field of Dreams,” if we build it, they (i.e., insurers) will come. That only worked for a short time under Obamacare. The Senate would be wise to listen to Senator Cruz.

It’s Obamacare’s guaranteed issue and community rating provisions that are causing the collapse of the individual market—as many of us warned. And the Senate bill keeps them, though Republicans hope that other provisions and higher subsidies will mitigate the damage.

It may be that Republicans are willing to sacrifice the individual market in order to achieve the bill’s other important reforms. The Wall Street Journal puts it this way: “Republicans have shown they are hapless in the pre-existing condition debate. Better to fight another day than to doom the entire bill.”

The risk is that premiums continue to rise and insurers flee and Democrats, the media and maybe even the public say the Republicans’ “free market” approach didn’t work, so let’s move on to a government-run, single-payer health care system.